Logan Products computes its predetermined overhead rate annually on the basis of

Question

Logan Products computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 26,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $504,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $3.00 per direct labor-hour. Logan’s actual manufacturing overhead for the year was $638,242 and its actual total direct labor was 26,500 hours.

Explanation / Answer

predetermined overhead rate(fixed) = $504,000

                                                Variable = 26,000*3 =$78,000

Total maufacturing overhead         = $582,000

Theref0re predetermined overhead rate = Total manufacturing cost / estimated direct labor hours

                                                                   = $582,000/ 26,000

                                                                   =$22..35 per hour

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